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Why Most High Schoolers Don't Know How to Manage Their Money

Daniel Bortz

Do your children know the ABCs of money management?

High school students are studying up on calculus, advanced chemistry, and world history, but most aren't learning fundamental money lessons to help them financially navigate the real world.

Such is the case with Jessica Pollack's son Adam, an 18-year-old who graduated in May from Los Alamitos High School in Orange County, California. Much to Jessica's chagrin, the school doesn't require its students to take a personal-finance class to graduate. "It's a top-rated school, but there is no personal-finance requirement, which is just astonishing to me," Jessica says. "There's a technology requirement that's statewide. As a technology teacher, I appreciate that, but these kids are exposed to computers and technology all the time. Yet when it comes to buying the computer and financing it, they're clueless."

Like Jessica's son, odds are your children will graduate from high school without being taught basic money lessons, including how to create a budget or write a check. Only 13 states require high school students to take a personal-finance class to graduate, according a survey released in March by the nonprofit Council for Economic Education (CEE). And although the recession has raised awareness about economic issues, it appears those heightened concerns have only prompted a few states to require a personal-finance class.

Interest is there, opportunity is not. An interest in personal finance among high school students doesn't appear to be the issue. A recent poll by Sallie Mae found that 84 percent of high school students desire more financial education. Among 16- to 18-year-olds, 86 percent said they would rather learn about money management in the classroom than make financial mistakes in the real world, according to a 2011 survey by investment bank Charles Schwab.

Parents have also expressed concerns over their children's lack of financial knowledge. According to an August survey by MasterCard, 64 percent of parents with college-bound children are worried about their children's ability to manage money.

A number of high schools appear to be doing the bare minimum to educate students about personal finance, says Ted Beck, who serves as chairman of the Jump$tart Coalition for Personal Financial Literacy, which trains teachers on how to instruct classes on personal finance. Beck also heads up the National Endowment for Financial Education (NEFE), a nonprofit that provides teachers with personal-finance training tools and the public with financial-education resources on its website, Nefe.org. He says many schools bring in guest speakers, but that it's not enough. "You can't learn a language in two hours, so having a two-hour visitor coming in to talk about money really doesn't provide the students with what they need," he says.

Nan Morrison, president and chief executive of the CEE, says state governments are so focused on teaching the core subjects of math and English that personal finance often gets overlooked. "If you can't read and you can't count, all bets are off," she says. She adds that many cash-strapped states lack the funding to institute a personal-finance course.

Conflicting viewpoints within a state's bureaucracy can also be an obstacle, says Maryland Comptroller Peter Franchot. Franchot is the key proponent behind a petition drive for the Maryland General Assembly to pass a bill in 2012 that would require all Maryland high school students to complete a standalone course in financial literacy to graduate. He says the state's current approach, which involves incorporating personal finance into other courses, is ineffective. "Embedding of financial literacy in classes is just a sop to avoid this issue, and it's developed by the education bureaucracy as a way to control their turf. That's why I haven't been able to get it through the legislature," he says. "Ultimately we will have it in Maryland, but you kind of have to drag the bureaucracy into it kicking and screaming."

Beck sees the same tug-of-war in states throughout the country. "You can't wave a wand and say, 'Every school must teach this now,'" he says.

Franchot adds that many state officials who oppose the bill cite funding costs as their biggest concern. However, he points out that Maryland's Carroll County, which chose independently to implement a standalone financial literacy course for all eight of its high schools, did so with just $37,700. The only recurring cost is $325 per teacher for a one-time training course, Franchot says. "The idea that you have to hire a bunch of new teachers and incur all sorts of new textbook costs and other sorts of expenses just isn't true," he says.

Discomfort among teachers and parents. Although Carroll County's training course was a minimal expense, Beck says getting teachers to feel comfortable teaching the subject may be a bigger challenge. If teachers provide students with misinformation about the dos and don'ts of personal finance, it can have serious implications on their livelihood. Approximately 64 percent of Wisconsin teachers surveyed by the University of Wisconsin--Madison said they felt unqualified to address the state's financial literacy standards, and few felt "very competent" lecturing a class on topics such as risk management and debt. But more than 70 percent of teachers polled in a nationwide NEFE survey said they are willing to receive formal financial-education training to teach a financial literacy class.

Many parents are also uncomfortable with teaching their kids about money management. David Bruzzese, who coauthored the book The Teen's Guide to Personal Finance: Basic Concepts in Personal Finance that Every Teen Should Know with Joshua Holmberg, chalks it up to parents lacking confidence in their own financial knowledge. He says many parents haven't learned critical financial values themselves, so teaching their children may do more harm than good. "Parents may be passing along bad financial habits to their kids because that's all they know," Bruzzese says.

Morrison of the CEE agrees: "To say it's a parent's responsibility seems unfair--unfair to the parents and unfair to the kids. You can't ask people to be responsible for teaching something if they haven't received the education themselves."

Consequently, money is among the lowest priorities in conversations between parents and their children--below talks about the importance of good manners and the benefits of good eating habits, according to a survey by Harris Interactive released in August.

So what role should parents play in teaching their children about money? Bruzzese says parents don't necessarily need to impart financial lessons to their children, but they should encourage discussions about the topic. Beck of NEFE agrees: "This should be a discussion, not a lecture," he says. "You want to make sure it's a comfortable thing to talk about around the dinner table."

While parents may not need to teach their children about advanced subjects like 401(k)s and mutual funds, they can teach the basics, such as the difference between wants and needs. Another important concept is learning how to apply the time value of money. "Not spending $1.50 a day on a soda can have a big impact on a person's financial future, and that's something that young kids need to understand," Bruzzese says.

Tamsen Butler, author of The Complete Guide to Personal Finance For Teenagers & College Students, says parents need to be financial role models. "If you're running around and you're buying a luxury car when you can't even afford to buy groceries without a credit card, you're setting a bad example for your kids," she says.

A look inside one personal-finance classroom. Some parents avoid the subject of money altogether. "My parents don't talk about finances whatsoever. The stock market comes up a lot, but that's pretty much the extent of what we talk about," says Jake Gallagher, a junior at Rock Bridge High School in Columbia, Mo.

Instead, Gallagher learns about money management in a personal-finance course--required by the state of Missouri for graduation--taught by Susan Lidholm. Lidholm's class is a one-semester course, but the school also offers an accelerated version online in the summer. It covers such topics as budgeting, banking, using credit wisely, and investing in human capital. "We all make mistakes in the finance world, but our class can help them avoid some of those catastrophes," Lidholm says.

As part of its consumer skills unit, Lidholm's class provides students with a real-world simulation that teaches them how to make practical decisions with their money. The students go to a car dealership, choose a vehicle, and then research what would be a fair price, as well as calculate the estimated personal-property and sales taxes.

Curriculum material is a minimal expense, Lidholm says. In lieu of a textbook, the Missouri Council on Economic Education provides support to teachers, supplying them with lesson plans and other materials. "We don't use a textbook because the economy changes so quickly that textbooks would become outdated fast," Lidholm says. She adds that there is a lot of free material available to teachers, so educators can create a tailored curriculum that meets their state's requirements.

Perhaps a testament to the importance of making the class a requirement is that several students in Lidhom's course say they wouldn't have taken the course if it was optional, but they're glad they did. "I probably wouldn't have taken this by choice, but if I had the chance to do it over again, I would take it because we've learned so much about finances and how they apply to our future," says Joshua Baumer, a junior at Rock Bridge High School.

Personal-finance competitions are another way for teachers to foster student interest in the subject. Lidholm served as coach to a Missouri team that included students from Rock Bridge in last year's National Personal Finance Challenge. To prepare, the students met twice a week to go over an expansive list of possible questions--chiseling down to such specifics as when you can cash in your IRA without incurring a penalty (it's 59 1/2). After winning regionals, the team went on to claim the national championship title. Lidholm says it's gratifying to watch her students take such an interest in personal finance that they spend time outside class to learn about it.

Timing and empowerment. Is high school the right time for students to take a personal-finance class? Or should it be taught earlier, in middle school or even elementary school? The Maryland State Board of Education's president and vice president, along with the state's interim superintendent, wrote a column published in the Washington Post in February arguing that financial education can't wait until high school, citing experts who say children begin to develop their understanding of money much younger.

Yet Lidholm says she thinks teaching the class to high school juniors syncs well with what's going on in their lives--they're getting driver's licenses and figuring out how to finance their first car, becoming more aware of gas prices, and starting to earn money from part-time jobs. And as juniors, they can learn about the implications of taking on student-loan debt while they're considering what college to attend. It's also worth learning how credit works, before they go off to college and get bombarded with credit-card offers their first day on campus.

Proponents of financial literacy say getting high school students to feel in control of their own financial lives is a matter of finding the right teacher, the right curriculum, and enough governmental support.

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